Tag Archives: SFCR

SFCR: Under the bonnet – insurers’ assets

This blog is part of the Pillar 3 Reporting series. For more blogs in this series click here.

Following the first annual reporting deadline under Solvency II, here’s a look at a breakdown of investment assets held by Irish insurance companies.

All companies
The figures below are based on an analysis of the investment breakdowns found in the Solvency and Financial Condition Reports (SFCRs) of 51 insurance companies in Ireland, which include all the major players in the Irish insurance market. Please note that these investments do not include assets held for unit-linked or index-linked contracts. Instead they represent the assets backing technical provisions and shareholder investments.

Note: The chart above shows the net derivatives position, i.e., derivative assets less derivative liabilities.

On average, Irish insurers are heavily invested in bonds, with 41% in government bonds, followed by 35% in corporate bonds. There are also significant holdings in cash and deposits (9%), listed equities (4%) and collective investment undertakings (5%).

The chart below shows the various market sectors in more detail.

Domestic life companies are heavily invested in government bonds, which account for 64% of their total investments, followed by corporate bonds, making up 22%.
• For life cross-border companies, there is a wider distribution across investment types, with the highest allocation of investments to government bonds (32%), followed by corporate bonds (23%), cash and deposits (17%), collective investment undertakings (11%) , listed equities (10%) and derivatives (6%).
Reinsurers are heavily invested in corporate bonds, which account for 56% of their investments on average, followed by 33% invested in government bonds. This may indicate that the large global reinsurers are prepared to take on a little more risk, in order to gain a higher spread.
• When we look at non-life companies, we can see their investments are almost equally split between government bonds (37%) and corporate bonds (38%).

In terms of more unusual assets, we see a wide range of assets included in the ‘Other’ category in the market sectors chart above, although these investments are typically low. Investments in the ‘Other’ category include property, mortgages/loans and collateralised securities in the form of mortgage-backed securities.

The public disclosure templates do not reveal the duration of investments held. Therefore it is not possible to get a picture of how well matched the asset portfolios are to the associated liabilities. However, a comparison with the investment mix and the market risk component of the Solvency Capital Requirement (SCR) of the various market sectors shows the following:

• For non-life insurers, the market risk component of the SCR is much lower than for life insurers even though the investment mix is broadly similar. This is typically due to the fact the non-life insurers invest in short-term assets, which tend to attract lower capital requirements.
• For life insurers, the domestic insurers have a higher market risk component than the cross-border insurers. This is counterintuitive to the asset mix, which shows that the domestic insurers are more heavily invested in government bonds that are traditionally considered to be less risky and attract no capital charge for spread risk under the Solvency II standard formula. It is not clear from the SFCRs what is causing this but it may be that the domestic insurers are investing in assets of a longer duration to back long-term liabilities, such as annuities, or it could be that the unit-linked policyholders of the domestic insurers are investing in riskier assets than their cross-border counterparts.

SFCR: Capital insights

This blog is part of the Pillar 3 Reporting series. For more blogs in this series click here.

Following the first annual reporting deadline under Solvency II, we look at the quality of the Own Funds on Irish company balance sheets.

All companies
The figures below are based on an analysis of 46 Solvency and Financial Condition Reports (SFCRs), which cover all the major players in the Irish insurance market. The headline statistic is that Tier 1 unrestricted Own Funds account for 93.7% of capital on Irish insurers’ balance sheets, as shown in Figure 1. Tier 1 restricted (1.1%), Tier 2 (2.9%), and Tier 3 (0.8%) make up the remainder of basic Own Funds. The small level of ancillary Own Funds (1.5%) shows that very few companies have applied to include additional ancillary items on their balance sheets.

Solvency II_Own Funds Breakdown_All Companies
Figure 1

Life industry
It is useful to consider companies selling life business in isolation. We have included 25 published SFCRs within this category.

Firstly, in Figure 2, we look at domestic life companies selling in Ireland. For these companies, a minimum of 90% of Own Funds is Tier 1 unrestricted capital. Please note that Irish Life redeemed €200m of Tier 1 restricted capital in February 2017. Thereafter their Own Funds were 100% Tier 1 unrestricted capital.

Figure 2

In fact, as seen in Figure 3, all these domestic companies are covering 100% of the Solvency Capital Requirement (SCR) using Tier 1 unrestricted capital.

Solvency II_SCR coverage
Figure 3

We see a similar picture in Figures 4 and 5 for the cross-border life market in Ireland, with very few cases of lower-quality capital on the balance sheet. Again, all the companies examined cover the SCR using 100% Tier 1 unrestricted capital.

Figure 4
Figure 5

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SFCR: More reports to explore

This blog is part of the Pillar 3 Reporting series. For more blogs in this series click here.

Further Solvency and Financial Condition Reports (SFCRs) were published in the past week or so.

• The latest SFCRs include AIG Europe Ltd, Blackrock Life, Sun Life Financial and White Horse Insurance Ireland.
• The award for glossiest report to date must surely go AIG Europe, which has presented a streamlined and consistent SFCR. It is perhaps an example of an insurer treating the SFCR as potential marketing or investor information, rather than purely a regulatory reporting requirement.
• UK firms are including the Audit Opinion and Report within the SFCR as they are required by the Prudential Regulatory Authority (PRA). Some of the previous UK SFCRs discussed in this blog series didn’t include the audit opinion as their reporting date predated the audit requirements. However, we haven’t seen this practice in other countries, such as Ireland, where the supervisors do not require publication of the audit opinion.

Links to all SFCRs included in previous blog posts are shown in the table below.

Company Link Country Country
AIG Europe Ltd Link UK 31/12/2016
ASR Group Link Netherlands 31/12/2016
Blackrock Life Ltd Link UK 31/12/2016
Care Insurance Co Link Gibraltar 30/06/2016
Cornish Mutual Asurance Co Ltd Link UK 30/06/2016
Euroguard Insurance Co PCC Ltd Link Gibraltar 30/06/2016
Evolution Insurance Company Ltd Link Gibraltar 30/06/2016
Hansard Europe dac Link Ireland 30/06/2016
International Diving Assurance Ltd Link Malta 30/06/2016
Municipal Mutual Link UK 30/06/2016
St James’s Place Group Link UK 31/12/2016
Sun Life Financial of Canada Link UK 31/12/2016
The Wren Insurance Association Ltd Link UK 30/06/2016
Vitality Life Ltd Link UK 30/06/2016
White Horse Insurance Ireland dac Link Ireland 30/09/2016

SFCR: Some more reports published

This blog is part of the Pillar 3 Reporting series. For more blogs in this series, click here.

Two new Solvency and Financial Condition Reports (SFCRs) were published in the past week. In both cases, the financial reporting date is 31 December 2016, representing an impressive turnaround time for public disclosure. They are both useful examples of Group SFCRs:

• St. James’s Place Group prepared a single SFCR encompassing the public disclosures for the Group and all of the solo entities within the Group with two life company subsidiaries.
• ASR understood it is a Group SFCR and so each of the solo entities has prepared separate SFCRs. ASR has published the public Quantitative Reporting Templates (QRTs) in a separate document which is available on the same web page as the SFCR report.

Company Link Country Reporting Date
St James’s Place Group Link UK 31/12/2016
ASR Group Link

Link

Netherlands 31/12/2016

SFCR: A taste of what’s out there

This blog is the first part of a series on Pillar 3 reporting for Solvency II.

For most companies with a 31 December year-end, the first annual reporting deadline under Solvency II is on 20 May 2017. In preparation for this I think it’s interesting to look at some of the first examples of published Solvency and Financial Condition Reports (SFCRs).

What does an SFCR really look like?

To date, a number of companies with year-ends before 31 December have published their reports and I have included links below:

Company Link Country Reporting Date
Evolution Insurance Company Ltd Link Gibraltar 30/06/2016
Vitality Life Ltd Link UK 30/06/2016
The Wren Insurance Association Ltd Link UK 30/06/2016
Care Insurance Co Link Gibraltar 30/06/2016
Cornish Mutual Assurance Co Ltd Link UK 30/06/2016
Euroguard Insurance Co PCC Ltd Link Gibraltar 30/06/2016
Hansard Europe dac Link Ireland 30/06/2016
International Diving Assurance Ltd Link Malta 30/06/2016
Municipal Mutual Insurance Ltd Link UK 30/06/2016

While clearly a small sample, there is a variety of company types, lines of business, and territories represented in the selection above. In addition to the Solvency II requirements themselves, looking at what others have published can provide a useful reference point as you prepare your own SFCR report. As a health warning, it should be noted that these SFCRs represent approaches taken by some individual companies and can’t yet be taken as established market practice. We also have no feedback yet on the expectations and views of the various European supervisors.

Differences in approach

While the Solvency II requirements are generally clear on what should be included in the SFCR, as always there is scope for different interpretations. Furthermore, it is a general principle that the SFCR should be proportionate to the nature, scale, and complexity of the undertaking. It is therefore reasonable to expect variations in the length and level of detail in these reports. It is worth remembering that the SFCR is a public document for policyholders and other key stakeholders.

How long is a piece of string?
Looking at the nine publicly available SFCRs mentioned above, there is a wide variation in length, with the shortest report coming in at 24 pages, while the longest is 73 pages.
The longest section on average is the System of Governance chapter (B), while the shortest section is on Capital Management (E).

 Number of pages Average Min Max
A. Business and Performance 4.1 1.5 7.0
B. System of Governance 8.9 3.0 17.0
C. Risk Profile 5.4 1.5 10.0
D. Valuation for Solvency Purposes 4.9 2.0 10.0
E. Capital Management 3.0 1.0 5.5
Appendix: Public QRTs 19.1 5.0 39.5
Total 45.3 24.0 73.0

Layout
Generally, the SFCRs follow the order of required contents set out in the Level 2 Delegated Regulations Article 292 to 297, and the corresponding Level 3 Guidelines (with Chapters A to E, and subsections A1, A2, and so on). I think this is a sensible structure as it is easy for the reader to follow and ensures consistency across the industry.

Where a particular reporting requirement doesn’t apply to a company, most SFCRs still include the section and give a reason why it is not applicable. In cases where firms simply skip the section, it becomes difficult for the reader to determine whether it is not relevant or whether they didn’t complete it for another reason.

You are required to disclose your public quantitative reporting templates (QRTs) together with your SFCR. In almost all cases, the public QRTs are included as an Appendix.

Presentation
As a publicly available document, some companies have ensured their SFCRs are consistent with their brand and other policyholder documentation—Vitality Life is a useful example here. On the other hand, a number of other companies have taken a more functional approach, with very little additional formatting. This choice probably depends on how likely policyholders are to access your SFCR and whether you view it as marketing material.

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